The Psychology of Pricing
and It's Role in Salon Marketing and Management

Pricing is about more than just dollar amounts; it is has an impact on a clients perception of your business. In some cases, the impression pricing creates is more important than the actual price itself. Small salons that understand how customer perception plays a role in their pricing strategies can use this knowledge to their advantage by using pricing to create a favorable perception with their target market.

People process information differently, based on many variable factors that we may or may not understand. We can however understand trends within groups of people and use this to adjust pricing to be more attractive to our target audience.  Traditional economics assumes that markets are efficient and participants rational. However, consumers behave differently, sometimes even irrationally when presented with a variety of triggers. When setting your prices, consider that the customer's perception of price may play a larger role in their acceptance of your selling proposition than the actual price does.

The first crucial question you are likely to ask is: "How much do I charge?" You may need to reorient your considerations to include the how, what, when, where and what form of pricing is appropriate. The real question may be "How do I charge?" Customers will react differently if you break the price into parts, bundle the product or service with other items, request payment before or after services are rendered. All these factors contribute to the psychology of pricing and the customers perception of your business.

Here are some ways when perception plays a large role in pricing:

The Perception of Savings. Many retailers will end their prices with the ubiquitous $0.99, instead of a “0” or “1”? Ever wonder why? Obviously, $9.99 isn't a lot better than $10.00. It’s just one cent ($0.01) savings! Nonetheless, customers look at items with prices ending with “.99” more favorably. The perception of savings makes for a powerful pricing strategy.

The Perception of Value. A common marketing practice with retailers as well as Internet marketing gurus is to bundle products, and offer some items for free. This tact creates the perception that the customer is getting a lot more than they are paying for.

Most people like freebies and bonuses!  Offers like; “Buy Now and Get 1 Free” “Buy Today -- and Get 4 Valuable gifts as a Bonus for Free!” create the impression of getting greater value for their money with most people. This is a strategy that is also employed by many companies that sell package deals.  From TV Shopping Networks to the Internet, this strategy has proven to be very effective in getting customers to buy.

The Perception of Discounts. Discounts ­ from 10% to 75% off ­ almost always never fail to attract buyers. Of course, the bigger the discount, the better! People just love to feel that they are saving and getting good value for their money (and who wouldn’t?).

There are a couple of problems with discounting your services; 1) People that are loyal to discounts will jump from business to business seeking the lowest price and never become loyal customers, 2) once you start offering discounts people expect you to continue, and 3) discounts cheapen your work and make you appear desperate.

Discount products all you want but if you must lower your price to attract customers do it in a way that does not offer a discount. i.e. 25% off shampoo just says that this particular product hasn't caught on yet; 25% off on haircuts says you're having a hard time attracting customers.

The Perception of Unbundling. Unbundling the price into payments also affects the decision to purchase. Marketers have discovered that price unbundling can make the very same cost trivial and more attractive to customers.

Take life insurance for example. Television ads frequently pitch insurance: “For only $5 a day, you’ll get a lifetime of assurance.” or "Life Insurance for $1.00." Pitched this way, the premiums sound very reasonable ­ and within easy reach. The price takes on a different spin if the same insurance company markets their product as “Annual Premiums of only $1,825.” Now, the price takes on a “big money” perception, and can actually discourage people from buying the product.

Salons can unbundle prices by offering a membership, Massage Envy is a good example of this tactic. By offering massages for $30 after you pay an enrollment fee, and $60 to non members, it appears that you will reap significant savings by becoming a member. True if you get massages often, not so true if you only get massages occasionally. Spa services are frequently packaged this way to be more attractive to the customer.

Services can also be unbundled in the service and price menu you post in the salon. If you have been charging $35 for a shampoo, haircut and blow-dry and your clients have become resistant, try breaking the prices out. $20 for a haircut, $5 for a shampoo and $10 for a blow dry may be more palatable to your customers.  They may may not get the full $35 package every time they come in, but they may come in more often for the $20 haircut which ultimately could make you more money.

Summary

As stated earlier discounting is a tricky affair, and let's be honest, most pricing strategies involve creating the impression of greater value and may be perceived as discounting. Remember, discounts are attractive to bargain hunters but it cheapens your work and bargain hunters are seldom loyal customers.

Pricing may have the most significant impact of all your marketing efforts on how your customers and potential customers perceive your business. Price your services too low and your clients will think you are second rate, price your services too high and they may not be able to afford you. If you are concerned that your pricing my be adversely affecting your business consider marketing your quality of service instead of price.

Pro Salon Solutions
pro-salon.com
Dallas, Texas 75248
phone: 469-441-8771